Seeking Advice & Opinion: Retirement / Property Investment Strategy Options

[Fire_Storm4670]

Hello

Some family members told me their retirement plans over dinner the
other night. I seek any comments / advice you may have.


Details are as follows:


- Husband and Wife are 57 and 53 years of age.
- Husband is a self-employed consultant. Wife does not work. No
dependants.
- Husband will move into a new contract soon that will see him invoice
approx $200K per year.
- Location: South Brisbane area (QLD).
- Assets include family home on 1300 sqm block 28km from CBD. Mortgage is approx 180K owing. Land value is unknown. Probably around $220K. Home is in need of major renovations and repair. Don't even ask me why house is like this with these sorts of $$$ coming in...it just is.
- They plan to invest $100K per year for the next 5 years into Super.
As Husband is self-employed, he can do this tax free, yes?
- Current Super savings are minimal at best. Minimal cash savings as
well. I know...I know...it just is. These people don't like saving. Too many holidays!
- After 5 years they will draw approx $500K from Super and build 3 new
homes on their land, removing the existing dwelling in the process.
They plan to move from house to house as each one is completed in turn...
hoping to avoid the capital gains tax.
- One house will be sold outright. The other will be rented initially
but may be sold at some point in the future. The other home will become their principal place of residence.
- They intend to have no mortgages on any of these 3 new properties.

- They hope to recoup the outlay costs of $500K and make a profit. This will add to their retirement savings.


Is this a sound plan? Any positives and/or negatives with this? I must admit this sounds very dodgy...especially when you look at CGT and having all their eggs in one basket, so to speak.


Thanks for your time!


- Richard

 

[BayView]

Where will they live while the existing dwelling is being demolished and the 3 new properties are being constructed? And how will they fund it; they have no savings and very little equity in the PPoR.
They may have some servicability issues with the Bank to do this project all at once; they may need to get a construction loan and put in a fair amount of deposit to get it started. They appear to be spendthrift, have no savings and/or assets so their track record will hamper their borrowing ability with the Bank I'm guessing.
Have they checked into the likely costs associated with the subdivision of the land and the construction, survey, architect, townplanning etc costs?
They may find that the profit over the whole project may not be enough to leave them with 2 properties with no debt after they sell the first one.

They may be better to pour some of his new very high income into renovating the existing house, subdividing the block and then selling the existing residence. Then they still have some spare land to build maybe 2 or 3 townhouses (depends on Coucil regs as to lot sizes per townhouse). The profit from the renoed house will help to fund the next stage, they rent somewhere else for the duration.

When the next 2 places are completed, they will still have debt, they can either;
1) rent out one, and live in the other and use the rental tax deductions to help with the cashflow and pay down the PPoR debt and leave any debt on the I.P
2) sell one townhouse, use the funds to pay out the debt on the one townhouse left which will be their PPoR. Then they will have some decent equity in it to use for more investing if they wish, and the new debt will be tax deductible.

My personal view on super is that it is not that good an investment. There is no ability to leverage the cash you put into it, other than the returns you receive from the superfund itself. It is linked strongly to the stock market and can suffer big losses as well as big gains. I certainly wouldn't be putting every spare cent into super; especially this late in his earning life. Maybe put half the $100k into super, the other half into the existing property with the plan of doing the above-mentioned subdivision project.

 

[s_t]

Just a couple of thoughts:

In the plan you've outlined, they will be waiting 5 years, just saving, before doing anything. With a high income like that, if they were to purchase an IP (or 2) now, they could have significant equity in 5 yrs, whilst also saving at the same time (slightly less than with no IP's though). If the mortgage is $180k, there is likely some equity they could get hold of for an initial deposit (if land is $220k, house and land would have to be, what, close to $300k minimum).

I just don't particularly like the idea of not increasing the asset base at all, especially with that income/serviceability! Sure, do all the subdivisions etc later (delay by a yr if necessary), but get a larger asset base working for them now.

 

[alexlee]

How much do they have in the super fund, and what sort of income in retirement do they want?
Alex